RE: Transition from employee to consultant--any gotchas?

["tech.writer" <tech -dot- writer -at- insightbb -dot- com>]

Dick,

Severance has nothing to do with collecting unemployment. It is not
considered salary, no matter how they pay it out. All the unemployment
office cares about is that you are searching for a new job and if you earn
$$ during that time. What does stop the unemployment is if you become a
contractor.

I would file for unemployment as soon as you are let go. If you earn money
on the side, you report it and they deduct it from your unemployment check.
This sets you up so that if the contract ends before you finish the
unemployment runs out, you can still collect unemployment. 

Here's the catch. The IRS looks closely at situations just like yours. You
MUST set yourself up as a business and conduct yourself in an INDEPENDENT
business manner. This is not as simple as saying you are self-employed. You
need to check with your state/county/city to see what is necessary to be a
real business. Also ask the Small Business Administration office in your
area about this. 

If you continue to do the same work, the company tells you how to do the
work, when to work, and so on, you are an employee in the IRS eyes. You need
to look into this. The catch is that if you set yourself up as a business,
you cannot collect unemployment, even when the contract runs out.

Tim Lewis
Lewis Communications
Writer -at- lewiscomms -dot- com
www.lewiscomms.com
 
 
> 
> Subject: Transition from employee to consultant--any gotchas?
> From: Dick Margulis <margulisd -at- comcast -dot- net>
> Date: Tue, 24 Aug 2004 08:20:08 -0400
> X-Message-Number: 2
> 
> My employer terminated me yesterday as part of a
> we-hope-we-can-still-hang-on-until-things-turn-around deperate last cut.
> They have asked me to continue performing a subset of my former duties
> as a consultant, with the understanding that I'm going to look for a
> full-time job and may end up being barred from moonlighting for them if
> I get one.
> 
> In the meantime, here's the tentative arrangement, about which I have
> questions:
> 
> 1. They're giving me severance of a few weeks' pay, to be paid in
> biweekly instalments. My understanding is that this probably will
> prevent my collecting unemployment benefits until I've received the last
> installment. Not a problem. However, I don't think this prevents me from
> entering into a contract with the company effective today.
> 
> 2. They're selling me, for a dollar, the old equipment and software
> licenses that were on loan to me at home so that I could telecommute.
> That way I'll own my production tools, helping me satisfy the IRS
> requirements for independent contractors. (The depreciated value is
> zero, so they make a profit at a dollar.)
> 
> 3. So that I can effectively do the tasks they want me to do, they are
> leaving me connected to the company network through VPN and are leaving
> my email account on.
> 
> 4. I am free to use the equipment I will now own (after they look up the
> serial number to ensure it's the company's to sell, not leased
> equipment) to sell my services to other companies, without restriction
> (and if you have any leads, hey, I ain't proud).
> 
> 5. They will pay me a fixed retainer, billed in advance, for up to a
> certain number of hours of work per month and a (higher) hourly rate for
> any additional hours needed to complete projects. Numbers are TBD, as we
> haven't started negotiating yet.
> 
> 6. Outside of routine tasks, which I will clock in aggregate and charge
> as total hours, any separate project assignment will be governed by a
> signed statement of work, with its own separate schedule, time
> estimates, and conditions of acceptance.
> 
> 7. I'm retaining copyright of all works produced until the corresponding
> invoice is paid in full, and I'm retaining a perpetual license to use
> non-confidential works in my professional portfolio.
> 
> So, folks, what have I overlooked? Do you think this will pass muster
> with the IRS regarding contractor status (I can cook up a business name
> if that helps)? Is there anything about the severance arrangement that
> would prohibit me from beginning immediately to do billable work?
> 
> I know you guys aren't lawyers (at least most of you aren't), and at
> some point I'll probably have to involve one. But if you have any
> suggestions for improving this plan before I present it to a lawyer, I'd
> like to hear them.
> 
> Thanks,
> 
> Dick


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